WEDF 2012: Plenary Session IV

The fourth and final plenary session, on day three of WEDF 2012, was moderated by Ms Frida Libwina, an anchor with Metro TV, Indonesia. She noted that while it is recognized that SMEs are the backbone of the economy in many emerging countries, they also face considerable difficulties in accessing finance for trade, which has been exacerbated by the economic and financial crises of recent years.

Ms Lakshmi Venkatachalam, Vice President, Private Sector and Co-Financing Operations, Asian Development Bank, said that while GDP growth in the region is expected to remain relatively strong, at 6.1% this year and 6.7% in 2013, the collapse in trade financing during the economic crisis accounted for about 15% of the decrease in world trade, according to the World Bank. There is a high demand for trade finance services, but the private sector is unable to meet this demand. The ADB has therefore launched a trade finance programme to fill the gap, working with 200 partner banks to offer guarantees and loans. The scheme supported US$ 3.5 billion in exports by 660 SMEs in 2011. The portfolio is expected to increase to more than US$ 4billion this year, she added. One of the challenges faced is a tougher international regulatory environment. The ADB therefore proposed creation of a trade finance default register at the International Chamber of Commerce, which demonstrated that trade finance risks are relatively low. The ADB is now working on a supply chain finance programme for SMEs. In response to a question about foreign direct investment (FDI), Ms Venkatachalam spoke of the aspiration of countries to break out of the so-called middle income trap, moving up the value chain from labour intensive activities to knowledge and technology intensive areas. She recalled the examples of the success stories of Singapore and South Korea in attracting FDI, and said that a committed and systematic approach is required, including the creation of an enabling investment environment.

Mr Nazeem Noordali, General Manager, Corporate and Structured Finance, International Islamic Trade Finance Corporation, Islamic Development Bank Group, said that the Group’s trade finance portfolio amounted to US$ 1.7 billion in 2007, and has now risen to US$ 4.4 billion, demonstrating the importance of Islamic finance. If trade is the engine of growth, then trade finance is the fuel, he said. When conventional banks reduced liquidity during the economic crisis, his organization had tried to bridge the gap, changing its business model from traditional import finance to trade commodity financing. In terms of interregional trade, he noted an increasing East-East momentum, with greater cooperation between the Middle East and Asia. The challenges for SMEs remain access to markets, lack of capital and access to finance.

Mr Suharsono, Managing Director of the Indonesian Exim Bank, explained that his bank was formed three years ago, focusing on providing financing, currency and insurance of financial risks for exports. He said that 79% of the trade facilitated by the bank is with emerging markets, especially within Asia, including China, Malaysia and Thailand, mostly involving rubber and textiles. At the same time, only 2% of trade is with Africa.

Mr Rene Awambeng, Group Head, Regional Corporates and Commodity Finance, Ecobank, UK, said that Ecobank is a leading Pan-African bank, offering a one-stop shop for trade finance in sub-Saharan Africa. It is currently building strategic alliances with other financial institutions in emerging markets, including South Africa, China, the Lusophone countries and India, which he said could contribute to filling the information gap that exists between the regions. Information asymmetry is a major challenge for traders, along with the need to get to know the main players, infrastructure, transaction costs, liquidity and the lack of long term finance for SMEs. Mr Amambeng drew attention to the problems of the lack of links between banks in developing countries and regions which make even simple transactions complicated and costly.

Mr Felix Adahi Bikpo, CEO, African Guarantee Fund, Kenya, explained that the role of his organization was to help provide comfort to financial institutions in supporting SMEs. If SMEs are not financed, they will not be able to join supply chains. If African GDP is to grow, the continent needs to find other sources of business, and this could be through South-South trade. This has to be led by SMEs, but the problem remains information asymmetry, a weak financial structure and the inability to access finance. Banks seek collateral, which is difficult and expensive for SMEs, so there is a need to find a new guarantee product to remove this obstacle to growth, providing equity guarantees so that the bank will convert short term finance into long term.

Mr André Soumah, Executive Chairman, ACE Global, Switzerland, said his organization aimed to help finance the whole trade pipeline. The approach today, he said, has shifted from balance sheet finance to transaction finance, while covering the legal issues to mitigate risk, and this offered opportunities for SMEs that were otherwise well prepared for exports but did not have access to financing.